Common Legal Pitfalls in Payroll That Many Businesses Overlook

Payroll management is becoming an increasingly sensitive and complex operation within businesses, especially in the context of continuously updated labor laws. Many companies in Vietnam—including organizations with dedicated C&B departments—still fall into “legal traps” that inflate operating costs, lead to disputes, and damage recruitment reputation.

The article below summarizes the most common legal errors in the payroll calculation process, accompanied by in-depth explanations and suggested remedies to help businesses optimize operations and ensure compliance.

1. Misunderstanding the Concept of “Contractual Salary”

One of the most common confusions is the failure to distinguish between the salary stated in the contract, the salary used for Social Insurance (SHUI) contributions, and the actual net income received. According to regulations, the salary recorded in the labor contract includes:

• Job-based or title-based salary
• Salary allowances
• Other additional payments where a specific amount can be determined

The labor contract clearly displays salary components and allowances according to regulations.

However, many businesses often intentionally or unintentionally list only the “basic salary” in the contract while moving allowances, bonuses, and support payments outside to reduce SHUI contribution costs. This is a major legal risk because:

• The Social Insurance agency has the right to collect arrears for up to 5 years.
• Businesses may face administrative penalties under Decree 12/2022.
• Employees can file lawsuits when their benefit rights are affected.

Solution: Standardize the salary structure in accordance with regulations, clearly separating items subject to/exempt from SHUI, and update promptly when policies change.

2. Errors in Regulations and Payment of Overtime

Overtime (OT) pay is always a “hotspot” as it directly relates to employee benefits. Incorrect OT calculation is the cause of many labor disputes in Vietnam. Common errors include:

• Calculating OT based on basic salary instead of the actual hourly rate paid.
• Failing to distinguish OT on normal days, weekends, and public holidays.
• Omitting allowances or other supplements in the OT unit price.
• Not applying the rates of 300% for holidays, 200% for rest days, and 150% for normal days.
• Insufficient storage of working time data—violating conditions to prove actual hours worked.

Percentage rates for OT calculation are fully detailed by workday type.

From 2024–2025, many businesses facing labor inspections have had to pay back OT differences and suffer penalties for applying incorrect unit prices. To avoid similar risks, businesses need to build a standard OT matrix directly linked to the timekeeping system to ensure every overtime hour is calculated correctly according to the law. Furthermore, applying payroll software or using professional outsourcing services helps minimize errors and increase operational transparency. All data related to timekeeping, payroll, and OT must also be stored for at least 05 years on a secure system to meet inspection requirements.

3. Failure to Timely Update New Regional Minimum Wages

During the 2022–2025 period, regional minimum wages in Vietnam have been continuously adjusted to offset inflation and improve labor productivity. However, in reality, many businesses miss the update deadline, leading to the continued application of old rates even after new decrees have taken effect. Many units also forget to adjust probation and apprenticeship salaries based on the ratio of the new minimum wage or fail to update minimum SHUI contributions for low-income workers.

These errors can expose businesses to serious legal consequences. Specifically, administrative fines can range from 20–75 million VND depending on the number of affected employees. Additionally, businesses risk having to pay back salary differences, along with interest penalties for long-term underpayment. Cases where employees publicly complain on social media also directly impact the employer branding.

To prevent risks, businesses need to establish periodic control mechanisms, such as quarterly reviews, to audit the entire salary system whenever regulatory agencies issue new decrees. Building an automated update process and clearly assigning responsibilities between HR, Payroll, and Compliance will help businesses maintain compliance and minimize violations regarding regional minimum wages.

4. Confusion in Determining Personal Income Tax (PIT) Taxable Income

Taxable and tax-exempt categories are clearly classified.

Incorrect Personal Income Tax (PIT) calculation is the leading reason businesses face tax arrears during inspections. Common “legal traps” include:

4.1. Incorrect Calculation of Tax-Exempt Items

Businesses often misapply regulations regarding the shift meal allowance (730,000 VND/month), telephone support, uniforms, per diems, or housing/transportation/fuel allowances. Misidentifying the nature of an expense—whether it is taxable or includes taxable income—can easily lead to businesses overpaying or underpaying tax compared to regulations, causing legal risks and liabilities for arrears and late payment penalties during inspections.

4.2. Failure to Deduct According to the Correct Progressive Tax Schedule

Some businesses still deduct PIT according to old progressive tax schedules or have not updated the latest family deductions, causing the tax payable to be calculated incorrectly from the start. This error not only directly affects the employee’s net income but also exposes the business to the risk of arrears and late payment penalties. Notably, if the payroll system is not standardized and automatically updated, deduction errors can persist for multiple periods, significantly increasing risk levels.

4.3. Failure to Finalize PIT on Time

Many businesses still forget to finalize PIT or submit files late, leading to late payment penalties, poor assessments of financial management capability, and even employee complaints due to mismatched tax figures. This reduces internal credibility and creates major risks during tax inspections or audits.

To avoid errors, businesses need to fully update the list of tax-exempt items according to Circular 111/2013 and the latest amendments, while automating the deduction and finalization process using software or professional tools. This approach helps reduce manual errors, save time, and ensure compliance with current regulations.

5. Violation of Regulations on Working Hours and Rest Periods

The framework for working hours and rest periods is a key factor directly affecting salary calculation, overtime, and benefits. However, many businesses still arrange work schedules that do not comply with the 48-hour/week regulation (or 40 hours/week if committed), fail to ensure break times for employees working 6 hours or more, or deploy night shifts without paying the 30% allowance as required by law. Unstandardized shift scheduling also leads to unintentional loopholes in overtime calculation.

Work schedules and rest times are established according to labor law standards.

These errors expose businesses to numerous risks, from being required to fully reimburse employee benefits to facing penalties during inspections. Employees may also complain to the DOLISA Inspectorate or the Trade Union when rights are not guaranteed, affecting the reputation, image, and retention capability of the business.

To limit risks, businesses need to standardize salary scales/tables linked to shift models and publicly disclose all regulations on working hours and rest periods from the outset. Transparency and process synchronization help ensure legal compliance, create internal fairness, and enhance team engagement.

6. Late Salary Payment and Insufficient Document Storage

One of the most common yet high-risk errors is late salary payment. According to regulations, if a business delays payment by more than 15 days, it is mandatory to pay additional interest corresponding to the amount and number of days delayed. This not only increases costs but also damages the business’s credibility in the eyes of employees.

Additionally, many units lack a methodical payroll record management process, such as failing to back up payroll sheets and reconciliation documents, lacking electronic signatures or full salary receipts, and failing to create payroll processing journals for each period. In the event of a dispute or inspection, the lack of these documents leaves the business without legal grounds to prove proper payment, leading to risks of penalties or prolonged litigation.

To minimize risks, businesses need to standardize payroll SOPs and implement electronic document storage software systems capable of retrieving data for 5–10 years. Building a transparent and consistent governance platform not only helps businesses comply with the law but also increases employee trust in the organization.

7. Incorrect Calculation of Public Holidays, Annual Leave, and Special Regimes

Many businesses still make mistakes in calculating salaries for special groups of days such as fully paid public holidays, annual leave, personal leave with or without pay, SHUI leave (maternity, sickness…), or extended unpaid leave. These are groups of days with different salary calculation regulations, so even a small error can lead to significant discrepancies in the employee’s actual income.

The main cause stems from businesses not building clear regulations in their internal labor rules, not cross-checking data with the Social Insurance agency, or not updating important policies such as regulations on paying for unused leave when employees do not take leave for 5 consecutive years. These shortcomings easily lead to budget losses or cause internal disputes because employees believe their benefits are under-calculated.

Annual leave and public holidays are clearly classified according to legal regulations.

To remedy this, businesses need to standardize the workday classification system while closely linking data between HRM, Payroll, and SHUI to ensure consistency and transparency. This approach helps comply with legal regulations and increases fairness in HR management.

8. Self-built Payroll Systems Lacking Periodic Legal Review

Many businesses build their own salary structures in the early stages, but over time, payroll tables become obsolete compared to new legal regulations, changing business models, evolving work organizations, or adjusted internal benefit policies. When the salary system is no longer suitable, businesses easily fall into “legal traps” such as incorrectly determining SHUI contribution rates, miscalculating taxable items, applying wrong OT formulas, or failing to meet regional minimum wages. This not only leads to inspection risks but also makes it difficult for businesses to build salary benchmarks for each position.

The solution is for businesses to review and calibrate the salary system at least 1–2 times a year, combining internal audits or using professional Payroll Audit services. This approach helps detect loopholes early, ensure compliance, and optimize the salary system according to legal regulations and operational reality.

9. Lack of Risk Control Processes.

From 2025 onwards, many medium and large-scale enterprises have begun to focus on building payroll compliance risk management models to limit errors and increase transparency. This model includes key elements such as approval matrices, data cross-checking, operational journals for each payroll period, automated screening by AI, and compliance reporting according to ESG standards. This is the foundation helping businesses comprehensively control the salary calculation, payment, and data storage process.

Businesses that do not establish a methodical risk management system often make errors in seemingly small but high-impact areas, such as incorrect tax codes, wrong deduction levels, delayed allowance updates, or omitted lump-sum expenses. To overcome this, businesses need to standardize processes with SOP documents, conduct periodic training, and deploy appropriate automation solutions to ensure long-term accuracy and compliance.

Payroll calculation is not just an administrative task; it is a legal and financial area requiring absolute accuracy. As a business grows and headcount increases, payroll risks multiply exponentially.

HR2B provides Payroll Outsourcing services with superior advantages:

• Ensuring 100% compliance with Labor Law, Social Insurance, and PIT regulations.
• International standard security processes.
• Automation to reduce manual errors.
• Transparent reporting and easy reconciliation.
• Accompanied by a team of C&B and legal experts.

HR2B is currently the payroll partner of hundreds of FDI enterprises and large corporations in Vietnam. If your business is looking to control risks, optimize costs, and standardize the payroll system, HR2B is ready to accompany you.